Discount heads the class in Retail Report Card

Staff -- Home Textiles Today, 7/30/2001 12:00:00 AM

NEW YORK —

Dragged down by a weakening sales environment during the second half of last year — which persists until this day — and hammered by an especially poor performance at department stores as consumers pinched their pennies and embraced discounters and off-pricers, U.S. retailers snapped a four-year winning streak in 2000, with profits tumbling down by almost 20 percent.

Unable to gain any traction from a double-digit sales increase, or widespread gains in productivity, the 30 key retailers in this 10th annual edition of the Home Textiles Today Retail Report Card watched their composite profits drop by 19.7 percent, to $9.98 billion from $12.4 billion in 1999 — a wrenching earnings shortfall of $2.5 billion. Missing from this year's ranking are Bradlees and HomePlace, out of business, and Strouds, which is no longer a public company. A fourth, Dollar General, had not yet filed its sales and earnings with the Securities and Exchange Commission as of press time.

Especially hard hit last year as consumers held on tight to their wallets were department stores, with their lingering perception of high prices, where profits were clipped by 81.4 percent, to $514.3 million from $2.8 billion last year. Department store sales were up just 4.0 percent — virtually flat, when taking into account the rate of inflation — to $90.1 billion from $86.7 billion.

Picking up the slack in sales, if not always in profits, were the nation's value retailers. Sales at mass merchants jumped up by 12.9 percent, to $287.1 billion from $254.3 billion in 1999, still stealing market share as bargain-hungry consumers flocked to the bargain bins, increasingly stocking up on the consumables that fill the front of the stores. But even there, it was tough turning a dime, and profits fell back by 0.9 percent, to $7.67 billion from $7.74 billion the previous year, weighed down by combined losses of $602.2 million at four of the eight discounters in this year's ranking — Kmart, Ames, ShopKo and Value City.

Doing even better were the lowest of the low-pricers, two big warehouse operations, Costco and BJ's, where sales advanced by 17.2 percent, to $36.4 billion from $31.1 billion. And profits in this no-frills channel were through the roof, zooming up 50.1 percent, to $762.9 million from $508.4 million in 1999. Profits at Costco shot up by 58.9 percent, and BJ's earnings rose by 18.3 percent.

Still cruising in the passing lane and riding on the fast track was the smaller, but rapidly growing, specialty channel. Driven by sales gains of 25 percent or more at three of the four players in the ranking, sales at specialty stores shot up by 23.3 percent, to $7.2 billion from $5.8 billion. More importantly, profits climbed higher by 19.1 percent, to $388.3 million from $326.1 million. Leading the pack, as it routinely does, was Bed Bath & Beyond, with earnings up by almost a third, and sales climbing higher by 29 percent. The only earnings disappointment came from Williams-Sonoma, where profits were off by 16.6 percent.

Lending some support to the composite bottom line — and it needed all the help it could get — was stepped-up productivity at a broad cross-section of retailers. In a sample of 27 retailers for whom figures were available, somewhat more than two-thirds, 20 of the 27, recorded gains in sales per employee. Leading the list — not surprising, given its no-frills, low-overhead format, was warehouse operator Costco, with sales per employee of $405,400, up from $385,400 last year.

Composite sales and earnings
Home textiles retailers

	2000 (x$000s)	1999 (x$000s)	% change
Net sales	$428,850,043	$389,338,311	10.1%
Net income	$9,979,009	$12,431,884	-19.7%

Composite results by retail format
Ranked by percentage of sales gain (dollar figures in 000s)

SPECIALTY STORES
	2000	1999	%CHG
Net sales	$7,210,212	$5,849,232	23.3%
Net income	$388,291	$326,106	19.1%
WAREHOUSE CLUBS
	2000	1999	%CHG
Net sales	$36,448,996	$31,092,278	17.2%
Net income	$762,938	$508,447	50.1%
DISCOUNTERS
	2000	1999	%CHG
Net sales	$287,114,359	$254,251,628	12.9%
Net income	$7,666,886	$7,738,522	-0.9%
FABRIC STORES
	2000	1999	%CHG
Net sales	$1,868,545	$1,763,072	6.0%
Net income	($2,733)	$32,416	—
MAIL-ORDER
	2000	1999	%CHG
Net sales	$5,306,233	$5,067,174	4.7%
Net income	$69,282	$122,705	-43.5%
DEPARTMENT STORES
	2000	1999	%CHG
Net sales	$90,146,979	$86,701,500	4.0%
Net income	$514,283	$2,759,135	-81.4%
NATIONAL CHAINS
	2000	1999	%CHG
Net sales	$36,548,000	$35,141,000	4.0%
Net income	$1,343,000	$1,453,000	-7.6%

Top 5 sales gains

1. Kohl's	35.0%
2. Value City	32.5
3. Bed Bath & Beyond	29.0
4. Williams-Sonoma	25.3
5. Gottschalks	22.6

Top 5 earning gains

1. Stein Mart	232.9%
2. Hancock Fabrics	59.4
3. Costco	58.9
4. Kohl's	44.2
5. Spiegel	41.6

Sales and profit productivity

Rank by sales	Rank by income	Company	Sales per employee ($000s)	Income per employee ($000s)
1	4	Costco	$405.4	$8.1
2	3	BJ's	328.5	8.9
3	2	Spiegel	230.2	9.1
4	23	Lillian Vernon	191.4	(0.9)
5	1	Bed Bath & Beyond	159.8	11.5
6	29	Hanover Direct	157.6	(22.2)
7	13	Lands' End	157.6	4.0
8	11	Wal-Mart	153.8	5.1
9	24	Kmart	146.9	(1.0)
10	20	Dillard's	145.7	(0.1)
11	25	Federated Dept. Stores	142.7	(1.4)
12	21	ShopKo Stores	129.3	(0.6)
13	10	Linens 'N Things	128.9	5.3
14	5	TJX Cos.	124.4	7.0
15	28	Ames	120.9	(7.4)
16	18	Saks	119.7	1.4
17	26	J.C.Penney	119.3	(2.6)
18	27	Value City	114.7	(5.3)
19	6	Kohl's	113.9	6.9
20	12	Sears, Roebuck	113.2	4.2
21	15	Belk	108.1	2.7
22	8	May Dept. Stores	105.5	6.3
23	9	Family Dollar	100.4	5.5
24	7	Pier 1 Imports	96.7	6.5
25	14	Stein Mart	83.8	2.7
26	16	Williams-Sonoma	83.2	2.6
27	19	Gottschalks	80.0	0.9
28	22	Jo-Ann Stores	66.5	(0.6)
29	17	Hancock Fabrics	59.3	1.7

Make or break: The bottom line
Return on sales: Net income as a percentage of sales

THE STRONG GET STRONGER: No surprises here. Predictably and routinely, Bed Bath & Beyond records the strongest bottom line in the business. And in a particularly tricky year for many U.S. retailers, it even managed to boost its return on sales. So did Pier 1, another veteran of the Top Three ranking. Kohl's makes a return appearance. And in a year that favored discounters, Kohl's displaces May Department Stores Co.
	2000	1999
1. Bed Bath & Beyond	7.2%	7.1%
2. Pier 1 Imports	6.7	6.1
3. Kohl's	6.0	5.7
AND THE WEAK … : Each of these retailers lost money last year. Hanover widened its loss, and Ames and Value City headed south after recording small profits the year before.
	2000	1999
1. Hanover Direct	-14.1%	-3.1%
2. Ames	-6.1	0.4
3. Value City	-4.6	2.0

The A-Team: Getting back to basics
Operating margin: Operating profits as a % of sales

THE CREAM OF THE CROP: At the end of the day, the only thing that counts is building sales and margins, while driving costs down. That's best reflected in the operating margin — operating profits as a percentage of sales — where the view is unobstructed by one-time charges, taxes, interest expense or debt. Saks and Pier 1 once again come out on top, with Kohl's joining the list this year by knocking off May Department Stores.
	2000	1999
1. Saks	14.2%	16.3%
2. Pier 1 Imports	13.8	13.3
3. Kohl's	13.2	12.5
SKIM MILK: The direct-mail channel is still having a tough time of it, caught between what's left of e-tailing and sluggish consumer spending. Hurting Spiegel was an 8 percent decline in same-store sales. Hanover remains weak, and they're joined in this year's ranking by Value City, which, correspondingly, also recorded the lowest return on sales.
	2000	1999
1. Spiegel	-12.9%	-10.1%
2. Hanover Direct	-6.7	-1.1
3. Value City	-6.8	3.1

Acid test
Percentage change in same-store sales

*Same-store sales for Eddie Bauer stores only.
IN THE PASSING LANE: The ultimate litmus test for any retailer, same-store sales, documents staying power and the ability to generate sales without building costly bricks-and-mortar units. Not surprisingly, in the current tricky retail environment — with gas and oil prices rising, digging deep into disposable income, and consumers pinching pennies — value-oriented retailers dominated the leader-board.
	2000	1999
1. Costco	11.0%	10.0%
2. Stein Mart	9.7	2.3
3. Kohl's	9.0	7.9
SLOWING DOWN: At least on paper, Spiegel lost the most ground last year, but this reflects only business in its Eddie Bauer stores; the number doesn't measure its catalog or other businesses, all of which showed improvement in overall sales and profits.
	2000	1999
1. Spiegel*	-8.0%	6.0%
2. Dillard's	-3.0	3.0
3. J.C.Penney	-2.4	-1.1

Through thick and thin
Average gross margin

THE GRAVY TRAIN: Historically, the strongest gross margins in the Home Textiles Today Retail Report Card have consistently been recorded in the specialty channel, notably the fabric and crafts specialists. Last year was no exception, with Hancock Fabrics and Jo-Ann Stores still leading the pack, although Jo-Ann lost some ground last year. They're joined by Lands' End, which enjoyed something of a turnaround last year, displacing direct-mail merchant Lillian Vernon.
	2000	1999
1. Hancock Fabrics	50.8%	48.7%
2. Lands' End	46.2	44.9
3. Jo-Ann Stores	43.5	45.8
LO-CAL MARGINS: Here it gets tricky. Thin margins don't necessarily mean a company is doing poorly; sometimes it's a function of its format. By their very nature, warehouse clubs and discounters will always have the lowest margins.
	2000	1999
1. BJ's	9.4%	9.5%
2. Costco	10.4	10.4
3. Kmart	19.9	21.8

Stockpiles
Percentage change in inventories

SLIMMING DOWN: The problem with inventories is that it costs a lot of money to put the goods on the shelf — and a lot more later if the customer isn't biting and the retailer has to mark them down. Each of these three retailers grappled with sales and profit issues last year, and in trying to bring supply in line with demand, and shore up the bottom line, reduced their stockpiles at a double-digit pace.
1. Dillard's	-21.1%
2. J.C.Penney	-11.4
3. Ames	-10.5
BULKING UP: Building inventories is fine and necessary, so long as a retailer has got the sales to support the build-up. No problem with the big-box superstores, Bed Bath & Beyond and Linens 'N Things, both building stores at a rapid pace. And Gottschalks, too, built sales by more than 16 percent last year.
1. Gottschalks	42.5%
2. Bed Bath & Beyond	29.0
3. Linens 'N Things	27.6

Sales per square foot

	2000	1999
1. Williams-Sonoma	$1,037	$975
2. BJ's	386	NA
3. Target	323	240
4. Sears, Roebuck	320	467
5. Kohl's	261	243
6. Kmart	242	232
7. May Dept. Stores	197	201
8. Bed Bath & Beyond	196	189
9. Gottschalks	196	196
10. Saks	191	180
11. Linens 'N Things	160	164
12. Ames	159	150
13. Dillard's	152	152
14. Belk	137	131
15. Family Dollar	103	NA
16. Jo-Ann Stores	92	88
17. Hancock Fabrics	68	66